DIY, Inc. just paid a $1.40 dividend (i.e., at the end of Year 0) that an analyst expects to grow at 9.3 percent annually for the next four years (starting at the end of Year 0 to the end of Year 4), then at 5 percent for two years to the end of Year 6. The analyst expects the dividend to equal 40 percent of earnings per share and the trailing P/E for DIY to be 15 at the end of Year 6. DIY is now selling in the market for $55 (i.e., at the end of Year 0). The analyst also provides the following pertinent forecasts.

Expected real interest rate 1%

Expected nominal market risk premium 5%

Expected inflation rate 2%

Expected nominal market return 8%

Beta of DIY, Inc. 1.2

(i) Calculate the intrinsic value of DIY common stock as of now (i.e., at the end of Year 0) using the information provided. Show all computations.

(ii) Is DIY stock overpriced, fairly priced, or underpriced in the market? Explain